Sources of Finance for R&D Investment: Empirical Evidence from Portuguese SMEs Using Dynamic Estimators

By Serrasqueiro, Zélia; Nunes, Paulo Maçãs et al. | Innovation : Management, Policy & Practice, August 2011 | Go to article overview

Sources of Finance for R&D Investment: Empirical Evidence from Portuguese SMEs Using Dynamic Estimators


Serrasqueiro, Zélia, Nunes, Paulo Maçãs, Leitão, João, Innovation : Management, Policy & Practice


ABSTRACT

This paper makes two specific contributions to the SME literature: (i) it is pioneering in using the two-step estimation method, considering SME R&D intensity as dependent variable and cash flow, short and long-term debt and government subsidies as determinants; and (ii) the empirical evidence obtained allows us make important empirical contributions. Cash flow and short-term debt, regardless of the respective level, influence positively R&D intensity by SMEs. Secondly, long-term debt and government subsidies are only important for increased R&D intensity for higher levels of long-term debt and government subsidies. The multiple empirical evidence obtained in this study allows us to make important suggestions to policy-makers, as well as to SME managers/owners.

Keywords: dynamic estimators; entrepreneurial finance; external finance; internal finance; R&D Investment; SMEs

INTRODUCTION

Innovative activities take on special relevance as a catalyzing factor of countries' economic growth, contributing to sustainable processes of economic convergence (Peters 2004). Regarding the expected benefits of an entrepreneurial society based on knowledge and business innovation, we may point out (Audretsch 2007; Müller & Zimmermann 2009): (i) firms that concentrate on innovation activities can grow at higher rates than those with less innovative propensity, given that the former have access to specific resources and skills that allow them to better explore new markets and investment opportunities, and in this way increasing the producers' surplus; and (ii) consumers benefit from a more diversified range of goods and services.

In the majority of countries, although large firms have generally greater capacity for investment in Research and Development (R&D), SMEs1 are the principal agents of technological change, innovation and economic growth. Therefore, SMEs' R&D activities can be fundamental for economic growth, productivity and qualified employment, generating added value (Müller & Zimmermann 2009).

Access to sources of finance for R&D activities is very important, given that it directly influences implementation of SMEs' R&D activities in two ways: (i) the selected source of finance mitigates liquidity constraints, which are frequently an obstacle to SME innovation; and (ii) the selected source of finance influences the outcome of innovation, given that it promotes or discourages acceptance of the risk associated with R&D activities (Smith 2010).

Small and medium enterprisess with high levels of investment in R&D activities may have problems in obtaining external finance due to problems of asymmetric information. As a result, their insufficient internal finance may have negative consequences for R&D activities, which are associated with greater investment in intangible assets, and higher technical and market uncertainty (Smith 2010). These aspects together generate asymmetric information problems, and consequently lenders2, namely banks and suppliers, impose severe conditions when granting credit to SMEs. Furthermore, the majority of SMEs do not fill the requirements to achieve quotation in the stock market, and the SMEs' owners are adverse to external equity, avoiding the loss of firm's control and independence. Considering the restrictions faced by SMEs in obtaining finance from external sources, we can expect innovative SMEs to be extremely dependent on internal finance to fund R&D activities. However, when internal finance is insufficient, SMEs may be forced to finance R&D activities with debt. Intangible assets, which do not serve as collateral, as well the market and technical uncertainty associated with R&D activities, may imply severe conditions in accessing debt. In this context, for lenders it is easier to monitor commitments associated with short-term debt than long-term debt (Myers, 1977). The need to pay off the debt and its charges over a very short period oblige firm's managers/owners to be more disciplined financially, reducing the possibility for less than optimal investment. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Sources of Finance for R&D Investment: Empirical Evidence from Portuguese SMEs Using Dynamic Estimators
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.